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5 Tips to Understanding High-Risk Merchant Processing

A man using his laptop to shop online with a credit card

In our increasingly cashless world, it’s impossible to operate a thriving business without accepting credit card payments. To accept credit card payments from customers, your business will need to partner with a payment processing company to acquire a merchant account. If you’re a high-risk business though, most acquiring banks and payment processors will refuse to provide you with a merchant account to reduce financial risk.

The few financial institutions that are willing to provide you a merchant account go through many complexities to enable payment processing for high-risk businesses. Improving your understanding of high-risk merchant processing can help you find the best credit card processor to promote business growth. Below, High Risk Merchant Pay (HRMP) provides five tips to help you understand the intricacies of high-risk merchant processing:

5 Tips to Understanding High-Risk Merchant Processing

Risk Assessment

Many factors can classify your business as high-risk. Poor credit, high rates of chargebacks, and being on the TMF/MATCH list are among many other factors that can place your business in the high-risk category. When you apply for a merchant account, underwriters at the payment processing company will perform a comprehensive risk assessment of your business to evaluate the profitability of working with you.

Underwriters at the high-risk merchant account provider will analyze diverse types of client data, such as the legality of your funds, volume of unpaid chargebacks, and financial stability to help them determine if they should extend their services to your business and at what cost. Companies that have stable business models and operate a legal enterprise are most likely to get approved by high-risk merchant processors.

To facilitate and accelerate the underwriting process, make sure your paperwork is complete, provide all the necessary information and resources, and be transparent about your company’s financial health.

Fraud Mitigation

High-risk businesses traditionally experience higher rates of friendly fraud and chargebacks in their industry. Chargebacks occur when consumers make an online purchase but then dispute the charges with their credit card company to get their money back.

Chargebacks are equivalent to cyber shoplifting, allowing consumers to get a refund and keep the product or service they purchased. While inflicting considerable financial loss to businesses, a high chargeback ratio also puts your merchant account at risk for suspension or termination.

High-risk merchant processing companies employ top-notch fraud and chargeback mitigation tools to protect their clients’ merchant accounts from the risk of suspension or termination. High-risk merchant account providers’ advanced fraud mitigation software solutions keep your company’s chargeback ratio below 2% to keep your account safe and improve business profits

A man with raised arms in a business suit looking up at skyscrapers

If you want to grow your business in a high-risk industry, look for a high-risk merchant processor that uses industry-leading fraud mitigation solutions such as Ethoca, Verifi, Web Shield, and Control Scan to keep chargeback ratios to a minimum and reduce financial loss.

Secure Payments

The exponential growth of cybercrimes and increased incidence of fraud in high-risk industries demand stringent cybersecurity measures to protect merchant and consumer data from online threats. High-risk merchant processing companies employ the most advanced internet security protocols to keep their payment platforms and integrations safe and secure.

High-risk merchant account providers must comply with the latest Payment Card Industry Data Security Standards (PCI DSS) to prevent credit card fraud. Payment processors should promote secure networks, encrypt data, and protect systems against malware among other cybersecurity measures to maintain compliance with PCI DSS protocols and prevent hefty monthly penalties by the major credit card companies.

To get secure payment processing for your high-risk business, research the credit card processor to find out if they are accredited by the PCI Security Standards Council. Partnering with a high-risk merchant processing company that provides secure payment processing will enhance your business’s reputation and increase its customer base.

Rolling Reserves

A rolling reserve is a risk management strategy that is commonly practiced by high-risk payment processors, including HRMP, to reduce the likelihood of financial loss. A rolling reserve will keep up to 10% of your company’s daily revenue in a non-interest-bearing account for a predetermined period to pay for potential chargebacks every month. Usually, the payment processor will hold the funds for 180 days, as credit card companies give customers 180 days to file a chargeback claim.

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Rolling reserves protect the payment processor from financial loss by ensuring that the merchant’s funds, not the processor’s money, will be used to cover the business’s chargeback costs. If there is no rolling reserve and the merchant suddenly goes out of business, the high-risk merchant processing company is forced to repay the customers. The held money is released to the merchant after its predetermined period has been completed, only to be replaced by new funds from daily sales.

Rolling Reserves Act as a Financial Safety Net 

When you sign up for a high-risk merchant account, your payment processor will most likely ask you to maintain a rolling reserve. Many merchants mistake rolling reserves as additional fees and costs for maintaining a high-risk merchant account, but that is not the case.

Rolling reserves are the high-risk merchant account provider’s hedge against a business’s failure to make chargeback payments. The processor does not earn any interest on the money and will release all the funds after the agreed-upon period.

Higher Fees

Providing merchant accounts to high-risk businesses pose significant liabilities to payment processors. Payment processing companies take on many risks and conduct extra administrative work to offer credit card payment services to businesses in high-risk industries. To offset the high-risks and compensate for extra work, merchant account processors charge higher fees. Consequently, maintaining a high-risk merchant account can cost significantly more than a traditional one.

On average, high-risk businesses should expect to pay three to ten times more than low-risk businesses for maintaining a merchant account. While the cost may be steep for some companies, others consider it to be a crucial investment for propelling business success. A global high-risk merchant account processor can make your business thrive internationally, accelerating profitable growth.

Invest in Global Business Expansion

If you want to expand your business’s global reach, look for a high-risk merchant processing company that has relationships with many international banks. Merchant account providers that have partnerships with numerous banks around the world can offer payment processing in multiple global currencies, allowing you to serve more customers in more places. The higher fees you pay for acquiring high-risk, global payment processing capabilities will enable you to serve an international customer base, generating more sales and revenue for your business.

Understand the Industry to Find the Best Payment Processing Partner

There are many complexities involved in processing payments for high-risk businesses. High-risk merchant account providers overcome diverse challenges to enable your company to process credit card payments. Improving your understanding of the intricate workings of the high-risk payment industry can help you find the best merchant account provider for your business.

HRMP is a PCI-accredited merchant account provider with years of experience offering specialized payment processing services to businesses in high-risk industries. Use our expert tips to enhance your knowledge of high-risk payment processing and find the right merchant account provider for your business. If you have any questions about our high-risk merchant accounts, you can contact our support team at (844) 787-5924 to inquire about our payment processing services.